Nervous investors park their savings in cash

Nearly two in five customers of Hargreaves Lansdown did not invest their new cash contributions last month as market volatility pushed nervous investors out to the sidelines.

Some 37pc of savers who deposited money with Britain’s largest broker left it completely in cash, up from 31pc in 2021 and 29pc in 2020. Savings deposits rise around the end of March as investors take advantage of Isa and pension tax allowances that expire on April 5.

Rival broker Interactive Investor also found that more investors had remained in cash in March. Almost a quarter did not invest their new contributions, compared with 22pc in 2021 and 21pc in 2020.

Investors have become nervous about deploying their savings, worried about them immediately falling in value. Global stock markets have gyrated this year thanks to the invasion of Ukraine, rampant inflation and rising interest rates. The MSCI World index is down by 4.4pc but lost as much as 10pc immediately after the invasion.

However, Sarah Coles of Hargreaves Lansdown warned against staying outside the stock market for too long. “You may struggle to find the ideal moment to buy and will miss out on market gains in the interim.” Investors who park money in cash also face the eroding effect of inflation, which reached a 30-year high of 7pc in March.

The highest proportion of cash hoarders was found among customers with Lifetime Isas. Almost two thirds of investors under the age of 40 saving for a house did not invest their contributions in March.

Parents investing on behalf of their children in stocks and shares Junior Isas were similarly hesitant to put their money in the market, with more than two fifths keeping their contributions in cash.

Investors pulled their money from funds en masse during February, with £ 2.5bn being withdrawn, up from £ 1.2bn in January, according to the Investment Association, a trade body.

Funds that invested in British companies saw £503m withdrawn even as London’s benchmark index, the FTSE 100, rose by 3pc in March.

Ryan King, a 24-year-old accountant from London, said that while he understood why some investors had panicked and stayed in cash, he was going to keep going.

“For many new investors, this could be the first time they have experienced a significant fall in the market. But if you have a long-term mindset, the best thing to do is to stay invested,” he said.

Mr King said he would keep his monthly investment the same, despite rising bills elsewhere. “I have some fixed expenses but there’s a lot that’s variable that I can cut back on, such as nights out and takeaways,” he said.